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Avoiding the traps in first-time credit use

By Angela Spires

"Charge it."

It's a great feeling, but let's face it: When you get out on your own for the first time, the credit card temptation can be overwhelming. Once you receive your first card, you may find yourself searching for reasons to use it -- reasons to spend that you never had before.

I know I did. Instead of forming a budget, I would just charge the items I couldn't pay for immediately. But that led to a mountain of debt that took me much longer to pay off than I had planned.

Still, it's entirely possible to use your first credit card responsibly, and some cards will even reward you for doing so. Credit cards are not the enemy. They can actually help build up your credit, but they need to be used properly to do so.

Here are a few tips for successful first-time credit card use:

1. Pick a card that suits you

When considering your first card, carefully review the interest rate, annual fee and all other potential charges. While many student credit cards offer enticing perks, it's key to make sure you won't pay more down the line for those benefits.

While many student cards advertise no annual fee, making them seem inexpensive on the surface, it's important you realize that your ongoing interest rates -- the ones that take effect after any introductory rates expire -- are likely to be high. And the higher those rates are, the more costly it's going to be to carry a balance from month to month. So be sure to note these figures before you apply.

2. Set up a budget

As in nearly all financial situations, budgeting is crucial when using a credit card. In the beginning, consider using your credit card for a single monthly expense -- one that you still budget for within your regular expenses. Then when your credit card statement comes in each month, immediately pay your balance in full.

Establishing a history of on-time payments is a great way to build your credit score, and paying for a regular expense on your card -- and then paying that cost in full every month -- is one of the simplest ways to achieve this.

3. Don't overextend yourself

Your credit score is important to your financial future. Taking on the responsibility of a credit card can impact your score for years to come, so be sure to put the brakes on your spending before it exceeds your ability to keep up.

It's also important that you don't view "keeping up" as simply being able to meet your minimum monthly payments. Only paying the minimum each month maximizes the amount of interest you pay on purchases. Instead, make a plan for paying off any debt you incur in a timely manner and avoid letting temptation lead you toward purchases you may not be able to pay off for months -- or even years.

4. Upgrade when you can

Once you have gained solid credit, check around for better credit card deals. You may be eligible for a card with a 0 percent interest balance transfer option or better reward terms, which should relegate your old, higher-interest card to the back of your wallet.

Don't apply for too many cards though. The more applications you complete, the more times your credit report is run, which can negatively impact your credit score. So consider your options carefully and apply for the card that best suits your needs -- and only that one. If you don't get it, simply move on to the next card on your list until you've been approved for the best card available to you.

Also, don't formally close out that trusty first card. Even if you don't use it, just having the account open shows the credit reporting agencies how long you've been using credit, which can again help your credit score.

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